Highlights of Report Number: †2011-30-118 to the Internal Revenue Service Deputy
Commissioner for Services and Enforcement.

IMPACT ON TAXPAYERS

Taxpayers with undisclosed foreign accounts or
assets who do not submit a voluntary disclosure run the risk of detection by
the Internal Revenue Service (IRS).† If
caught, these taxpayers face the imposition of substantial penalties, including
the fraud and foreign information return penalties, as well as an increased
risk of criminal prosecution.† By making
an offshore voluntary disclosure, taxpayers can become compliant, avoid
substantial civil penalties, and generally eliminate the risk of criminal
prosecution.

WHY TIGTA DID THE AUDIT

This audit was initiated to determine whether
the IRSís voluntary disclosure practices were effective, especially with the
high volume of cases received, and to determine whether all cases have been
appropriately assigned and worked.† The
audit is included in our Fiscal Year 2011 Annual Audit Plan and addresses the
major management challenge of Globalization.

WHAT TIGTA FOUND

The
IRSís voluntary disclosure practices were effective, and cases were being
appropriately assigned and verified even with the unusually high volume of
disclosure requests received and accepted.†
However, some improvements are needed.

Our review of 60 closed voluntary disclosure cases
showed that 18 cases had no evidence of the taxpayers reconciling the
unreported income in their offshore accounts to their amended or newly filed
delinquent tax returns.† In 28 cases, information
from the taxpayersí financial accounts and promoters either was not captured or
was incorrectly transcribed on the data collection system used for current and
subsequent data mining efforts.† In 31
cases, voluntary disclosure agreements were not printed on IRS watermarked
paper or initialed by revenue agents on each page to ensure no alterations to
the original document were made by taxpayers.

WHAT TIGTA RECOMMENDED

TIGTA recommended that the Commissioner, Large Business and
International Division, implement a requirement for taxpayers to provide a
detailed reconciliation of unreported income.†
The Commissioner, Large Business and International Division, and the
Commissioner, Small Business/Self-Employed Division, should develop a quality
review process to ensure all data relating to voluntary disclosures are
properly transcribed for future data mining and require revenue agents to
initial each page of the voluntary disclosure agreement before submitting it to
taxpayers for their signature.

In their response to the report, IRS management agreed with
two of the three recommendations.†
Management stated that a reconciliation of all unreported taxpayer
income from offshore accounts is already a requirement of the 2011 Offshore
Voluntary Disclosure Initiative.† In
addition, management plans to implement procedures to conduct a 100 percent
review of inputs to the E-Trak Offshore Voluntary Disclosure Program
system.† However, management disagreed
with our recommendation to require revenue agents to initial each page of the
voluntary disclosure agreement before submitting it to taxpayers for their
signature.

READ THE
FULL REPORT

To view the report,
including the scope, methodology, and full IRS response, go
to: